ESG is not just about ticking boxes, it’s about earning the public’s trust

If businesses want to earn the public’s trust, they need to take ESG seriously, and communicate what they’re doing authentically and transparently.

In the eyes of today’s public, businesses must do more than just provide quality products and services, they also have a responsibility to be good corporate citizens and make a positive contribution to society and the environment. This is one reason why so many businesses have made a commitment to Environmental, Social and Governance (ESG) standards.  

ESG is a framework used to assess a business’s activities and performance on ethical and sustainable issues. This includes an organisation’s ability to safeguard the environment, manage relationships with employees, supply chains and the community, and how company leadership, shareholder rights and internal controls monitor the outcomes. Importantly, the framework serves as a tool to assess how an organisation manages risks and opportunities in our changing world. 

The problem is that most members of the public don’t have a good understanding of ESG. According to the SEC Newgate ESG Monitor report, only 12% of Australians had a “good understanding” of ESG. This disconnect between ESG activities and public perception is a problem because it undermines trust in business, especially if ESG activities have been misrepresented.

Members of the Ethics Alliance gathered in April 2023 to discuss the importance of SEC Newgate’s research and consider challenges that organisations face in the way they address ESG and community expectations.  

For starters, the ESG Monitor indicated that 38% of Australians feel completely uninformed about companies’ ESG activities. Interestingly, it also suggested 72% of people either “never” or “rarely” look at the ESG reporting, while only a mere 8% of people trust ESG reporting. 

Some of this scepticism around ESG may have been cultivated due to it politicisation. In April 2023 the leader of the opposition, Peter Dutton, commented: “To be frank, some business leaders need to stop craving popularity on social media by signing up to every social cause, even though they may not believe in it.” This attitude acts in contrast to the global research from the 2023 Edelman Trust Barometer that shows 82% of people expect CEOs to take a public stand on climate change. And to Dutton’s point, they certainly expect authenticity. 

The public holds high expectations for businesses to use their influence for good. SEC Newgate’s study showed that of those surveyed, 80% agree that companies have a responsibility to behave like good citizens and consider their impact on other people and the planet. It also showed that 66% of people are also willing to give a company a second chance if it was transparent about its mistake and stated how it would do better in the future. 

If businesses want to live up to community expectations and strengthen their social value, then they need to carefully choose which ESG initiatives to focus on and ensure they have legitimacy in those areas. When evaluating, they should ask the following: Is it genuine? Is it meaningful? Is the organisation committed? And how do I know for sure or where is the proof?  

By demonstrating a clear link between sustainability efforts and overall strategy, businesses can better align their initiatives with community expectations.

One starting point is a materiality assessment, which is a process to identify and prioritise the most relevant and significant ESG factors that have a substantial impact on the business’s operations, financial performance and stakeholder interests. This exploration can help identify the most pressing issues that align with the purpose and resonate with the community. 

Other principles for organisations to consider when developing their ESG framework that emerged from The Alliance’s discussions were:

1. Ethical conduct – including treating employees fairly, avoiding unethical practices, and minimising environmental harm.
2. Giving back – which may involve investing in local communities, adopting environmentally friendly practices, or supporting social initiatives. 
3. Transparency and accountability –stakeholders, including consumers, employees, and shareholders, often have differing perspectives on ESG issues, making it challenging for businesses to balance these conflicting demands and trade-offs. 

Communication also needs to be well considered by organisations in order to address the disconnect between the community’s need for transparent ESG information and their desire to learn about it. Connecting with stakeholders transparently about an organisation’s progress and mistakes can help meet these challenges. 

ESG is about more than just accounting. It’s demonstrating a business’s responsibility and recognising the importance of sustainable practices in safeguarding our planet. ESG needs to be a whole company effort that is undertaken authentically and communicated transparently to the public that reflects its purpose, values and principles. The more businesses that do this, the more the public will understand what ESG is and the more they will come to trust businesses as being responsible corporate citizens.